March 6, 2006

Executive Summary

Superintendent of Public Instruction Marilyn Howard recommends $1.047 billion in overall support for K-12 education (an 6.0% increase over the current year), while Governor Kempthorne and the Legislature's Joint Finance and Appropriations Committee (JFAC) each recommend $1.035 billion (a 4.9% increase). JFAC's recommendation will go to the House and Senate for floor votes.

Our briefing materials ask you to consider these recommended levels of overall support against several relevant benchmarks including the state's estimate that enrollment in public schools will be 3% higher next year, Idaho's rank of 47th in the nation in per student funding, Idaho's rank of 25th in the nation in public school spending per thousand dollars of personal income, and achievement benchmarks showing that Idaho students perform above average on national standardized tests.

Our briefing materials also ask you to consider the school facilities funding issue currently before the Legislature. The Idaho Supreme Court recently ruled that the Legislature must revise its system of school facilities funding in order to meet its constitutional obligation to provide a "general, uniform, and thorough system of public, free common schools."

A Republican proposal recommends that the State contribute $8 million in ongoing annual funds and $25 million in a one-time appropriation that expands State facilities funding programs. A Democratic proposal recommends that the State contribute $63.5 million in ongoing annual funds and $35 million in a one-time appropriation to expand State facilities funding programs. A separate proposal before the Legislature would amend the Idaho Constitution by reducing the supermajority required to pass a school facilities bond from two-thirds to 60% of school district voters.

Our briefing materials ask you to consider these proposals in the context of a review of the Supreme Court's ruling, an analysis of the current State system of funding school facilities, and a description of the total facilities costs that school districts confront.

I. Introduction

As it does every year, the state government must decide this year how much financial support to provide for Kindergarten through 12th Grade education for the next year. This year, the state government confronts the additional question of how to revise its system of school facilities funding. These briefing materials aim to provide you with information relevant to three questions:

1. Is the overall amount that the state will spend on K-12 education too much, too little, or about right?
2. Is the increased amount that the state will contribute to school facilities funding too much, too little, or about right and is the manner in which that contribution is made appropriate?
3. Do you support a proposed Constitutional amendment to reduce the supermajority required to pass a school facilities bond from 2/3rds to 60% of school district voters?

It will be helpful to recognize that you're about to wade into the sometimes complicated discussion about education funding. In Section II you will find a discussion of overall support for K-12 education. In Section III you will find a discussion of State support for school facilities in particular. We've made this as straightforward as we're able, but the materials will certainly demand your full attention. It's worth it: The state is profoundly affected by its education funding levels.

II. Funding for K-12 Education

Marilyn Howard, the Superintendent of Public Instruction, recommends $1.047 billion for Kindergarten through 12th grade education next year. Governor Kempthorne and the Joint Finance and Appropriations Committee (JFAC) of the Legislature each recommends a budget of $1.035 billion. JFAC's recommendation will now go to the House and to the Senate for floor votes.

Is Governor Kempthorne's and JFAC's recommended K-12 budget too low, too high, or about right? Is Superintendent Howard's recommended budget more appropriate?

We will try to provide you with several benchmarks or comparisons for your consideration in answering these questions.

Comparisons to the Last Two Years

The first benchmark against which to measure next year's proposed budgets are the K-12 budgets of the last two years. As summarized in Table 1, Superintendent Howard's proposal increases funding 6.0% over the current fiscal year (2005-2006), Governor Kempthorne's and JFAC's budgets increase funding 4.9%. The current year's budget was a 2.3% increase over the last fiscal year's budget (2004-2005).

In comparing the recommended budgets to previous budgets it is important to note that enrollment in public schools is increasing. The state currently estimates that enrollment will be 3% higher next year than this year. This means that the state would need to increase K-12 funding by 3% to maintain the effective level of support provided last year, without factoring in inflation. If one includes an adjustment for inflation (currently around 2% or 3%) as well as increased enrollment, then the state would need to increase funding for schools by around 5% to provide the same effective level of support as last year.

Table 1
Comparison of Proposed K-12 Budgets with K-12 Budgets for Last Two Years

Source: FY 2007 Idaho Legislative Budget Book, pp. 16 -17.

Comparisons to Other Areas of the State Budget

The second benchmark we provide is Governor Kempthorne's budget recommendation for everything but K-12. (We do not provide a similar comparison of JFAC budgets because it has not yet set its recommended budgets for each agency.) Governor Kempthorne proposes a budget of $1.274 billion for everything but K-12. This is a 6.8% increase over this year, compared to the 4.9% increase that he proposes for K-12. Table 2 summarizes the proposed increases in various aspects of the overall budget compared to K-12.

As can be seen from that table, the increases for Health and Human Services and for Public Safety drive most of the increase in the rest of the budget. Both are large portions of the budget that are increasing significantly. With respect to the Health and Human Services budget, the increase is driven in large part by the rising health care costs, particularly the state's obligations under the federal Medicaid program, which pays for medical assistance for those with low income. With respect to the Public Safety budget, the increase is driven mostly by the increasing costs associated with housing the state's rising prison population. Although reforms are being discussed that might address both of these critical pressure points in the budget, they provide little hope of relief in the short term. While there may not be any easy solutions to these rising costs in the near term, many argue that it is unwise to let healthcare and prison costs constrain investment in education, since better educated children tend to grow up to be healthier, more productive, and less prone to crime.

Table 2
Comparison of Governor's Proposed K-12 Budget with His Other Proposed Budgets

Source: Source: FY 2006 Idaho Legislative Budget Book, p. 17.

Comparisons to K-12 Support in Other States

As seen in Table 3, Idaho ranks 47th among the 50 states in how much it spends on each student in public schools. However, Idaho also ranks 25th in how much it spends on K-12 education as a proportion of the personal income of its residents (see Table 3). How can we be so generous in terms of the proportion of our income we pay for K-12 education through taxes, and yet provide so much less per student that most states? There are primarily two reasons. First, Idaho has lower levels of personal income than most states. Second, Idaho has a higher proportion of its population who are school age. In other words, relative to other states, Idahoans have fewer adults earning less but supporting more children.

Table 3
Idaho Expenditure on K-12 Education Compared to National Averages

Source: U.S. Census Bureau (2004). 2002 Census of Governments: Volume 4, Government Finances. Data are from 2001-02. http://ftp2.census.gov/govs/school/02f33pub.pdf

Comparisons to Student Achievement in Other States

Student achievement can be measured in a variety of ways. One of the most definitive tests used to compare the academic achievement of students in different states is the National Assessment of Student Progress (NAEP). As seen in Table 4, Idaho is above average in its NAEP scores. Comparing Idaho's per student spending (Table 3) with the achievement of our students (Table 4) indicates that we get a better bang for our educational buck than most states. While Idaho is well below the national average in terms of per student expenditure, it is above average in achievement.

Table 4
Idaho Student Achievement on the National Assessment of Student Progress
(NAEP) Compared to National Averages

Source: Education Week (January 5, 2006). See also: http://nces.ed.gov/nationsreportcard/

Challenges to Funding K-12 at Higher Levels

Of course, decisions about how much to increase funding of K-12 education are necessarily made in the context of limited resources. If Idahoans wish to increase the funding for K-12 education over what the governor or JFAC have recommended, the additional dollars must presumably come from cuts to other areas of the budget, tax increases, or a combination of both. We'll take a brief look at the budget cutting options and then the tax options.

It is challenging to find places to cut the budget right now in order to free up additional dollars for K-12 for three reasons:

• Budget Pressures from Rising Health Care and Prison Costs: As discussed above, there appear to be few options in the short term for avoiding significant budget increases for healthcare programs, such as Medicare, and for rising prison populations. These budgets are such a large percentage of the overall budget—health and human services are 22% and public safety is 10% of the total budget—that the large increases in these areas significantly constrain the budget cutting options.
• Size of Public School's Budget: The public schools' budget is such a large percentage (45%) of the overall state budget that it takes relatively large cuts elsewhere to provide a relatively small percentage increase in the public schools budget. Only 23% of the state budget is not in K-12 education, heath and human services, or public safety. A 5% decrease in these other areas would provide about a 2.5% increase in K-12 education funding.
• Already Tight Budgets: The recent economic downturn and somewhat sluggish recovery have put pressure on all areas of the budget for the last several years makes finding acceptable places to cut the budget more difficult than it otherwise would be.

Finding acceptable tax increases is also difficult. This is particularly true in a year in which the dominant issue before the Legislature is the need for property tax relief. Property taxes rose 8.6% overall last year and an average of 5.8% annually for the five years before that. Property taxes specifically on homes have been going up even faster—11.7% on average last year. These increases have given rise to significant pressure to reduce the property tax burden, particularly on homeowners. In fact, the only issue that we as members of The Common Interest rated as more important this year than K-12 education funding, was property tax relief. Over 35 property tax bills have been introduced this session.

Two major pieces of property tax legislation appear likely to pass that would have a significant effect on K-12 education. First, it appears likely that a signficant expansion of the Homeowner's Exemption will pass. This legislation would not affect how much state money is available to support schools, but would significantly reduce the amount of money local school districts raise through property taxes. About 25% of local school funding comes from property taxes and about 70% comes from state funding (primarily raised through sales and income tax).

Second, it appears likely legislation that eliminates half of the school property tax and replaces most of that revenue with a half-cent increase in the sales tax will pass. Proponents of this measure argue that it only shifts the source of funding for schools and that it will not decrease overall school funding. Opponents, which include school boards, school adminstrators, and teachers, observe that the legislation does not require that the new revenue from the half-cent increase in sales taxes go to schools. Rather, schools must compete with other aspects of the state budget, including the ever-increasing budgets for Medicaid and prisons, for that revenue. Given the level of commitment that the Legislature has shown for education in the past, many argue, the effect of this measure will be to decrease support for schools. For a review of the entire property tax issue, including its possible effects on schools, go to our PROPERTY TAX BRIEF.

Two separate measures not related to property taxes would increase the sales tax by one cent and dedicate that revenue to schools. The first is a bill that has been introduced this session. The second is a voter initiative effort being led by the Idaho Education Association, the union for teachers in the state.

The Idaho sales tax was increased from five cents on every dollar to six cents three years ago as a temporary measure to deal with decreased tax revenue because of the economic downturn. That temporary 1-cent increase expired last June. If it were restored, it would bring in more than $200 million in additional revenue per year.

Another option for providing more funding for K-12 education is to close some of the many tax breaks currently on the books. Those who support this approach argue that special interests have managed to pass many tax breaks that do not serve the public interest.

As you think about what level of overall K-12 education funding you would prefer, it may be useful to consider whether you would prefer funding that does not necessitate budget cuts or higher taxes—funding at about the level that JFAC and the Governor have proposed. You might also consider whether you think higher levels of funding are appropriate and, if so, whether the additional funding should come from budget cuts in other areas, or tax increases, or some combination of both.

Please note that our review of the K-12 education budget focuses on the general fund portion of that budget, rather than on the dedicated funds and federal funds portion, because the general fund is the largest portion of the K-12 budget (71%) and the portion over which there is the greatest budgetary discretion.

III. School Facilities Funding

This year, the Legislature must also address the particular question of State funding for public school facilities. A Republican proposal recommends that the State contribute $8 million in ongoing annual funds and $25 million in a one-time appropriation to expand State facilities funding programs. A Democratic proposal recommends that the State contribute $63.5 million in ongoing annual funds and $35 million in a one-time appropriation to expand State facilities funding programs. The Legislature also has before it a proposal to amend the Idaho Constitution by reducing the supermajority required to pass a school facilities bond from two-thirds to 60% of school district voters.

Are the proposals for additional State school facilities funding too high, too low, or about right? How does the State provide that funding to school districts in the most appropriate manner? Should we amend the Constitution to reduce the supermajority required to pass a school facilities bond from two-thirds to 60% of school district voters?

To assist you in answering these questions, we will consider the proposed legislation in the context of an analysis of the Supreme Court decision that demands legislative action, an analysis of the current school facilities funding system, and an analysis of facilities costs that school districts confront.

The Supreme Court Decision: ISEEO v. The State of Idaho

Last December, the Idaho Supreme Court ruled in Idaho Schools for Equal Educational Opportunity (ISEEO) v. The State of Idaho that the State had "failed in its constitutional duty to provide a thorough education for Idaho's public school students in a safe environment conducive to learning." Specifically, the Supreme Court upheld a district court's determination that the legislature had failed to establish a sufficient system for funding school facilities. As a result of the Supreme Court's 2005 ruling, the Legislature must now create a system to meet its constitutional obligations.

This Supreme Court decision is momentous, in part, because the Court has been working to establish the Legislature's specific obligations regarding school facilities funding for over fifteen years. ISEEO v. The State of Idaho first entered the courts in 1990 and has come before the Supreme Court no less than five times. Of course, the Legislature's responsibilities regarding public education in general—the basis of the ISEEO v. The State of Idaho lawsuit—are defined in the Idaho Constitution. Article IX, Section 1 of the Constitution reads:

The stability of a republican form of government depending mainly upon the intelligence of the people, it shall be the duty of the Legislature of Idaho to establish and maintain a general, uniform and thorough system of public, free common schools.

During the case's third appeal in 1998 (ISEEO III), the Supreme Court ruled that "a safe environment conducive to learning is inherently part of a thorough system of public, free common schools" and remanded the case to the district court for that court to determine whether or not the Legislature had established a means for funding facilities that provided such an environment. In 2001, the district court determined that the Legislature's system of school facilities funding was unconstitutional because "reliance on loans alone to pay for major repairs or the replacement of unsafe school buildings was inadequate for the poorer school districts."

As the Supreme Court has ruled on the Legislature's obligations, the Legislature has taken actions in an effort to meet those obligations. The Supreme Court's most recent ruling acknowledges several of the Legislature's "significant strides." For instance, the Court refers to the Legislature's increase in public school appropriations in the 1990s, its more recent establishment of a loan and grant fund through which seven school districts received $10 million to renovate existing facilities and construct new facilities, and its increase in the facilities levy payback period from ten to twenty years in order to make such levies more palatable to voters.

Despite its acknowledgement of these actions, however, the Supreme Court found that the Legislature is currently still in violation of its constitutional obligations and agreed with the district court's conclusion that the current system of school facilities funding "based upon loans alone is not adequate to meet the constitutional mandate to establish and maintain a general, uniform, and thorough system of public, free common schools in a 'safe environment conducive to learnin